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Economics of High Definition Pay-TV Service

By end 2010, high definition (HD) TV will be ubiquitous as its penetration is forecast to surpass 80 percent of all U.S. TV households. In the meantime, Kagan Research finds cable and satellite TV platforms scrambling to make economics work while simultaneously jumping to exploit early-stage opportunities.

To steal the march on cable, direct broadcast satellite company DirecTV made a $1 billion investment to beam 150 national channels and 1,500 local channels in HD by end 2007. By then, Kagan Research estimates just 60 percent of cable subscribers will be digital capable, which is a prerequisite for HDTV. Of course, direct broadcast satellite is all-digital.

In theory, the transition to HD presents a window of opportunity to launch new TV programming services, such as billionaire Mark Cuban's HDNet and HDNet Movies channels. But the economic model most have embraced is incumbent standard-definition channels simply offering parallel HD simulcasts. Of the 40 cable channels transmitting at least some content in HD at mid-2006, 35 are simulcasts.

Holding down revenue potential for TV channels, advertisers are not yet captivated by HD. TV channel platforms struggle to come up with consumer pricing models, with no success in making HD an 'a la carte' program option. As a result, HD is simply coupled with standard definition TV service.

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